Dec 30, 2011

Risk Management on High-Frequency Trading (HFT)

The tools to measure risk, VaR and Stress for example, can also be used for higher frequencies but should be considered the fact that they have a non-linear behavior more pronounced on intraday returns, requiring a more refined analysis.


The big issue I see is to understand the strategy used to then understand what the most appropriate methodology to present a risk to the decision maker.

The HFT universe expands the universe of data exploration, with respect to risk some phenomena must be considered, for example, effects of liquidity throughout the day.


HFT strategy can allow open positions overnight. Analyzing this case, we can consider significant the risk of exposure from one day to another and model separately only the open and close prices data trying to view the risk of this open position.

Measuring the risk of an HFT strategy can contrast with some methodologies that just observe a "snapshot" of the portfolio or a static display. Measuring risk is to obtain a measure of possible loss in a given situation. VaR and Stress come only as a methodology for analysis of pre-selected prices data.

Rodrigo Sucupira Rodrigo Sucupira
Rodrigo is a Automation and Control Engineer - Escola Polit├ęcnica / USP. Interested on Financial Engineering, writes articles about Finance and Technology.
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